AOL UK has 2.1 million customers

BBC business editor Robert Peston said Carphone Warehouse, owner of the TalkTalk broadband and phone offering, was paying £370m for the operation.

AOL UK has 2.1 million customers across the country - 600,000 on dial-up and 1.5 million with broadband connections.

Carphone Warehouse, which runs the UK's largest chain of mobile phone stores, first moved into broadband in April.

News of the deal saw its shares rise 5% in morning trading in London.

The acquisition is transformational for our broadband business Carphone Warehouse boss Charles Dunstone Carphone Warehouse shares

It will be keeping the AOL name and the US firm's policy of charging customers.

Carphone Warehouse is funding the acquisition through an extension of its existing debt facilities, and will keep AOL UK's management and infrastructure.

AOL UK is being sold by its American parent company Time Warner.

Under the deal, the main part of AOL will continue to manage advertising sales on AOL UK and also now on TalkTalk, through a revenue-sharing agreement.

'New revenues'

Carphone Warehouse chief executive Charles Dunstone said the deal was "transformational for our broadband business".

We have accelerated our customer service recruitment plans and incurred additional wholesale broadband costs Charles Dunstone TalkTalk's costs rise

"The joint development of AOL's already successful audience platform will bring us new advertising and content revenues in a proven and low risk manner," he added.

News of the deal came after Carphone Warehouse said strong demand for its existing TalkTalk broadband offer meant it was costing £20m more than originally expected.

The firm has had problems dealing with what it said was "unprecedented" consumer reaction to the service.

The UK's largest residential internet provider is currently NTL, which has 2.9 million home customers, followed by BT on 2.2 million.